Crowdfunding Business Model and Strategy

The continual evolution of the crowdfunding business model means that anyone with a decent idea has the chance to start a business. All someone really needs is a computer, some time to market that decent idea, and build up a following that is willing to put some money behind it. Everyone from authors to biotech researchers are discovering that crowdfunding can put millions into the bank account. Even the idea of having better potato salad can raise $50k in the crowdfunding world.

What are the lessons to be learned from the crowdfunding business model? It might seem like a magic bullet that can help inspire tremendous business growth, but not every crowdfunding campaign succeeds. Think of this business model as more of a way to prove a concept without having to spend tremendous resources to test it first.

Here’s how the crowdfunding business model could help any business in any industry find success.

1. Crowdfunding brings in immediate support.

With enough marketing available, a crowdfunding campaign can provide the immediate support a business needs to establish itself. This can be done through rewards, as Coolest was able to do with nearly $13 million in advance orders. It can also be done through equity thanks to micro-finance. Some businesses are even clearing debt through crowdfunding. The options are virtually limitless, but this immediate support doesn’t happen unless a company reaches out for it.

2. A business has a chance to seek out venture capital.

Crowdfunding is often just one step in a very long journey toward the establishment of a new business. Many new ideas that are proven through the crowdfunding marketplace go on to receive millions in venture capital later on down the road. For Oculus, the innovative VR technology, Facebook paid $2 billion to get their hands on it. Oculus got its start on Kickstarter.

3. Real expansion can be achieved.

What makes the crowdfunding business model so enticing is the fact that single products can be funded and brought to market in virtually any industry. Artists create limited run products that they create and ultimately sell through crowdfunding. New products can be tested on a crowdfunding platform and the cost that a business sees if a product fails is much lower than through traditional methods of customer segment testing. This means real expansion is achieved at a fraction of the cost of other business models.

4. It immediately builds relationships.

Perhaps the greatest advantage of the crowdfunding business model is that it can create an instant relationship with the brand and its supporters. Better than that, people love to support a winner. The value of supporting a winner creates brand loyalty and allows everyone to feel like they got something out of the crowdfunding experience. Each relationship also creates warm leads for future opportunities, which often means expanded and diverse revenue streams can be obtained because of the crowdfunding process.

5. It’s extremely low cost.

Let’s say that you’ve got $10,000 in capital to launch an idea right now. For $2,000, you can create a pretty good video to promote your idea. For another $2,000, you could create a prototype. If you do the rest of the work yourself, you’ve still got $6,000 to support the campaign in other ways. Crowdfunding has proven that the return for a good idea can be incredible. Even Reading Rainbow discovered that to the tune of $5.5 million and a $1 million Angel matching investment.

6. Failure doesn’t create a permanent negative reflection.

The $13 million that Coolest was able to raise provides a second proof of the crowdfunding business model: a past failure doesn’t need to define an organization. In 2013, Coolest attempted a crowdfunding campaign that failed. They went back to the drawing board, changed up a few things, and made another attempt that was based more on the proven concepts of this business model. The results speak for themselves.

7. There is no limit.

This is the best part about the crowdfunding business model: an organization is only limited by the scope of their imagination. There really is no limit to what a company can achieve. This allows for more jobs, more opportunities, and more success in the long-term perspective.

The crowdfunding business model has changed the way small businesses can compete. With billions raised so far and an industry that could be worth $1 trillion by the end of 2017, there is still plenty of time to rake in the fruits of this business model.